0! *,-.12-1.* * - nu Angle

1 Developing a strong R&D structure to drive company growthFigure 1: Overall purpose of research and development (R&D) and the four key activities Overall purpose of R&D Named activityTrack market Research _ Reduce uncertainty _ Explore future in advance of business needs (foresight) _ Build competencies for the future _ Proof of principle new technologies from outsideService market Development _ Create new products efficiently _ Improve processes to enhance performance _ Current product modificationsShape market Innovation _ Launch smart ideas _ Look for ways to disrupt in target markets _ Create new markets _ Solve problems in new waysMaintain market Support _ Reduce product costs _ Solve process and line problems _ Current product modificationsDeveloping a strong R&D structure to drive company growthAs pressure increases to meet new business targets, companies are looking for new solutions that can bring them additional revenue streams.

2 An efficient R&D department can be a major source of this new growth. It can help companies to deliver innovative products and new technologies and support operational improvements that increase first thing to recognize is that R&D should serve many purposes (as illustrated in figure 1) and if well managed can provide sustained growth and market differentiation. However, for R&D to perform well it needs an optimal and flexible organizational structure. For many organizations the structure of the R&D department has evolved organically over a period of time. As a result the function can get locked in the past and can fail to respond effectively to rapid disruptive changes taking place in the market and so miss opportunities for new business design of this structure needs careful systematic thought, based on the organization s needs. It should also take into account knowledge about what has failed in the past, both internally and externally, and what has worked Developing a strong R&D structure to drive company growth NU Angle WHITE PAPER/GROWTH /01 DECEMBER MMXIV/ IntroductionThe need for restructuring the R&D organizationWe have seen an increase in R&D restructure activity over recent months driven by:1.

3 Regulatory changes in markets this can be driven by legislation. For example FDA-approved labelling changes or for the need to meet the requirements of markets with very different characteristics such as China or Disruptive technology the emergence of new technologies that create dramatic shifts in the competitive environment. For example, digital convergence creates threats to existing technologies and opportunities for new types of services. Biomaterials are emerging as a new growth platform for a wide range of An upturn in mergers and acquisitions purchasing a pipeline of new products or the attainment of technology can be a driver for acquisition. 4. Collaborative research there is greater emphasis on Open Innovation and R&D collaboration to populate pipelines. 5. Shareholder frustration the lack of new products and services emanating from R&D creates pressure for a examples of R&D restructuringMerck and AstraZeneca recently restructured their R&D departments to achieve growth goals or improve productivity in their Corporation dramatically restructured its R&D department in response the changing nature of the technology in its markets, particularly the growth of digital photography.

4 Fujifilm has set up a new structure that can respond effectively to present and future challenges. DSM the Dutch based chemicals company, has a major growth platform initiative called Enabling Structures for Innovation central to this strategy is a program for new opportunity and Nephew made two major acquisitions in the last two years as well as moving towards a more regionally-driven business model. This necessitated changed thinking in how local product needs are met and how R&D is research creates new demands on structureGlobal companies are increasingly deploying collaborative open innovation business models through ecosystems and platforms. However, such collaborative R&D business model innovation has been studied primarily from the perspective of the focal company or ecosystem orchestrator. The critical roles played by other companies and the dynamic interplays between them are often overlooked.

5 The shift to open innovation that many organizations expect from their R&D staff has brought about a fundamental change to the nature of their day-to-day work. Moving from inventing internally within the boundaries of the lab to working collaboratively with outsiders. This creates a huge challenge for many R&D scientists and engineers who may not have the skills to achieve the desired results1. / Developing a strong R&D structure to drive company growth NU Angle WHITE PAPER/GROWTH /02 DECEMBER MMXIV/1 Coping with Open Innovation: Responding to the Challenges of External Engagement in R&D, California Management Review, 56:2 Winter 2014: 107. The needGaining value from M&A activityStudies over the last 20 years showed that up to 83% of Mergers and Acquisitions (M&A) fail to produce real benefit for the shareholders, let alone employees, and more than half actually destroyed acquisition of new products can be a major objective for the M&A, detailed information is often not available until a late stage of the process.

6 A company s pipeline and patents are its most prized assets and are not revealed to competitors until the last moment in case the deal falls creates considerable issues for the R&D leadership tasked with making it work. At nu Angle we have seen, for example, how one company acquired another without realizing that, as the new company was in a different market sector, it would require different R&D design rules. The head of the department also lacked the experience of leadership skills to spot the problems until almost too late. The issue of the wrong R&D structure was only seen after the R&D was badly under major issue is that expectations over timescales are often unrealisticDuring a merger, R&D departments are the last to combine and this process can take up to nine months. This is inevitably highly stressful and time consuming for management and employees. In fact this time period may only cover the structural elements, definition of roles and responsibilities.

7 It may not address establishing the working model; to create the new internal personal networks needed to make the team effective. Integrating two large R&D groups also requires considerable skill. Often the combined R&D structure can be very different from either of the two separate R&D groups. A round of optimization may well be needed. As a result new projects, building on the combined strengths or synergies will not be undertaken in this period, nor will any major hiring decisions be taken beyond that of the existing employees of the merging firms. This in effect can destroy value in the short-term and hence the longer-term aspects of R&D integration are very management in R&D requires great sensitivity and good leadership skills. Without a clear strategy the company could lose key staff to its competitors. Unfortunately, companies often fail to prepare for the pitfalls that can result from pitfalls of reorganizing the R&D structure without an implementation plan include:+ Weakened ideation networks and loss of good scientists and technologists.

8 + Lost institutional knowledge. + Lack of established working relationships between central R&D and local Developing a strong R&D structure to drive company growth NU Angle WHITE PAPER/GROWTH /03 DECEMBER MMXIV/2 Weber Y, Oberg C., Tarba S. (2014), The M&A Paradox: Factors of Success and Failure in Mergers and Acquisitions, FT business case for R&D transformationR&D spending is an imperfect measure of innovation it fails to capture how well the money is spent and how R&D is being structured to capture high value growth. Improved performance is down to R&D internal management: how experienced it is and how outward looking it needs to ask itself the very serious question: Are we part of the problem? Can we do this ourselves or do we need help? At nu Angle we help international organizations to generate greater value from their R&D investment. Our analysis of high performing R&D departments has shown that they share key operational attributes and strategies.

9 At the core, they focus on flexibility, balancing demand and supply, generating choice and maintaining a sustainable pipeline flow. They also look outside of their own organization for solutions, particularly in the face of increased regulation, heightened M&A activity and greater complexity in have found that by aligning the R&D structure with the company s strategic objectives, these companies are able to simplify their R&D organization and restore discipline to development processes and R&D culture. %HQH WV RI PDQDJHG R&D restructureThere are many benefits from taking a careful look at the R&D structure and making changes, these include:+ Improved organizational alignment and decision-making creating a quantifiable framework for R&D provides a common platform for decision-making. It improves visibility into demand and the translation of expectations into reality therefore ensuring that speed is in the right direction.

10 + Creating a sustainable pipeline flow a focus on generating a sustainable and scalable pipeline improves quality and choice of products. Resources can be adapted to the changing needs and demands placed on R&D.+ Access to external knowledge improved access to partners and external science provides a platform for sustaining innovation, access to expertise and risk sharing. This also provides the ability to tap into innovative technology sources that evolve with changes in the market place.+ Improved asset utilization a simplified network structure reduces complexity and improves effective utilization of assets. Emphasis on a flexible cost structure allows for variability and effective reallocation of resources. / Developing a strong R&D structure to drive company growth NU Angle WHITE PAPER/GROWTH /04 DECEMBER MMXIV/ The business case/ Developing a strong R&D structure to drive company growth NU Angle WHITE PAPER/GROWTH /05 DECEMBER MMXIV/Seven Areas Framework for successful R&D designnu Angle has developed a good practice framework for thinking about R&D Technology Management Architecture defines a strategic intent for R&D it establishes a clear and common view for the R&D strategy and its scope of action.